Investors devoured shares in Beyond Meat Inc., the first alternative-meat company to go public, and its opening-day performance Thursday reverberated in Minnesota’s food industry.
The El Segundo, Calif.-based maker of plant-based burgers and sausages had the strongest market debut so far in 2019; its shares nearly tripled on the Nasdaq Stock Exchange.
One of its key suppliers, Puris, is based in Minneapolis, and General Mills was an early investor.
“We continue to be excited by the company’s vision and products, and we see their IPO as validation that there are several available and successful exit options for our partners,” said John Haugen, managing director of 301 Inc., the investment arm of General Mills. It sold its stake as part of the offering.
Beyond Meat on Wednesday priced its shares at $25 for the offering. That was at the high end of an advertised range but turned out to be well below investors’ demand. Its shares started trading at $46 and closed at $65.75.
Plant-based foods are experiencing rapid growth compared with conventional counterparts. In 2018, plant-based meat alternatives grew 24% while traditional meats grew just 2%, according to Nielsen research commissioned by the Plant Based Foods Association.
Even so, investors were treating Beyond Meat more like a technology stock than one in the food industry. At Thursday’s closing price, the company had a market value of $3.9 billion, more than 40 times its 2018 revenue of $88 million. By contrast, General Mills has a price-to-sales ratio of 1.9 and Hormel 2.3.
Much of Beyond Meat’s growth is due to advances in food science that are improving the taste and texture of dairy and meat alternatives. The firm in December signed a three-year ingredient supply deal with Puris, which specializes in non-GMO, organic pea protein, an ingredient category that is also growing quickly.
“We have a bit of a waiting list for our product and, in December, we had to make a really big decision to give a lion’s share to one big customer [Beyond Meat],” said Jon Getzinger, chief marketing officer at Puris.
The moment they signed that agreement, he added, “they became a cornerstone customer.”
Getzinger said there’s more demand for Puris’ product than there is supply, even with its expanding capacity.
Last year, Minnetonka-based Cargill took a minority stake in Puris. The investment from the world’s largest agriculture trader may be used to finance the construction of Puris’ second processing facility, pending approvals. The ingredients company is eyeing a location in Minnesota, according to a regulatory filing.
Puris processes all of its pea protein at its Turtle Lake, Wis., facility. The company aims to have the new plant running in less than two years.
“We wanted to be able to grow with our customers. Cargill provides that cash at hand to invest in a plant. That’s where the value for Beyond Meat is,” Getzinger said. “We’ve done amazing things with just a few people, but Cargill has more people in any one [ingredient] application than we have in the whole company.”
Just down the road in Golden Valley, General Mills sees Beyond Meat’s IPO as validation of its talent-spotting abilities. Beyond Meat was its first outside investment, prompting the cereal maker to create 301 Inc., which has since invested in nearly a dozen companies.
“For the past six years we have worked with Beyond Meat’s great management team on elements of the business including supply chain and product development,” Haugen said. “They remain a good partner.”
Also, General Mills’ former chief scientific officer, Bernhard van Lengerich, is on Beyond Meat’s board.
He declined to comment for this article, citing a “quiet period” ahead of the IPO. An SEC filing showed the company hired van Lengerich in an advisory role in 2016.
Beyond Meat has attracted investors such as Microsoft co-founder Bill Gates and celebrities such as Jessica Chastain and Leonardo DiCaprio. It sells products to 30,000 grocery stores, restaurants and schools in five countries. Its vegetarian patties are available in some burger joints like Carl’s Jr.
Still, Beyond Meat has never made an annual profit. It’s also facing serious competition from other “new meat” companies like Impossible Foods and traditional players like Tyson Foods Inc. Tyson recently sold a stake in Beyond Meat because it plans to develop its own alternative meat.
Beyond Meat products, made from pea protein, canola oil, potato starch and other plant-based ingredients, have been sold in the meat section of groceries since 2016. Its burgers “bleed” with beet juice; its sausages are colored with fruit juice. That has broadened their appeal beyond vegetarians. Health comparisons are mixed.
Beyond Meat, founded in 2009 by Ethan Brown, also touts environmental benefits. The company said a plant-based burger takes 99% less water and 93% less land to produce than a beef burger and generates 90% fewer greenhouse gas emissions.